Dominant CEO, deviant strategy, and extreme performance: The moderating role of a powerful board. (2011)

“…it is possible that coupling dominant CEOs with powerful boards represents an ideal governance arrangement.”

Jianyun Tang, Memorial University of Newfoundland
Mary Crossan & W. Glenn Rowe, Richard Ivey School of Business, The University of Western Ontario
Journal of Management Studies, 48(7), 1479-1503 (2011)

“…dominant CEOS, powerful in the organization as compared to other members of the top management team, drive companies to extremes of performance.

“Unfortunately for shareholders, that performance can be either much worse than other companies, or much better.

“There is one solution to an all-powerful CEO: a strong board of directors. Companies with strong boards counteract powerful CEOs, and swing the tide of performance to the plus side.

“…some companies with strong CEOs, such as General Electric under Jack Welch or Microsoft as led by Bill Gates, have performed tremendously well. Other companies such as Enron under Kenneth Lay have failed miserably, with often disastrous results for employees and shareholders,

“The idea is that a dominant CEO may lead a firm to a deviant strategy. This strategic deviance can yield a strong position for a firm in its markets, or it can drive it to big losses. To control the negative effects of strategic deviance, and balance the power of the CEO, a company needs a strong board of directors. A strong board provides a useful watchdog and a second set of valued opinions to the strategic direction of the company. This oversight by the board can help catch the deviant strategy that could lead to failure before it is implemented.

“Although strong boards can help counter the potential for big losses … the board does not completely eliminate such a possibility. Other mechanisms of governance need to be activated to provide greater levels of caution against failure in light of an all powerful CEO.

“Having a dominant CEO can place an organization in jeopardy, but it is a challenge that can be managed. As recommended by the authors of the study, ‘Having dominant CEOs is risky, but powerful boards help control the downside risk while leaving the upside potential relatively open. Thus, it is possible that coupling dominant CEOs with powerful boards represents an ideal governance arrangement.’”

From the Press Release

Access the full paper here: Dominant CEO, deviant strategy, and extreme performance

Access the press release here: Megalomaniac CEOs: Good or bad for company performance?